The question nobody asked yet is WHY? That will make a difference in you options. I agree with the AtlantaTaxExpert and ScottGem with the penalties assessed and it NOT being worth it, but if you need the money... you need the money. I'd say, look through the information given to you when you set it up, it should explain how to borrow against it... and it can be as much as 95% of what's in there. *However, any loans against a 401k must be paid back (yes to yourself-with interest), and of will be subject to a double taxation. You pay back the loan with after-tax dollars... then you are taxed on the money again when you withdraw it in retirement. Or check with your HR person to get that info. If your company is a large one, they may have some kind of loan program you can access. They penalize you heavily for straight-out withdrawal of funds because they must have a certain percentage of employee participation in order to maintain the 401k status. But there are hardship allowances that would enable you to withdraw funds and not be penalized, but it usually suspends your future participation for 1 year or until the funds are paid back into it. If you NEED the money, what for and how much, and for how long? There are soooo many sources of money out there it would be a shame to trash your 401k and your taxes this year over this hasty move.
If you have found a better place to put your money you're stashing for retirement... and you want to start it with a larger lump sum... unless you have a crapload of deductions on your taxes this year that won't roll forward to future years... don't get that money from the 401k, it will dig too deep. There are some wonderful places to put your money, and far better than a 401k, but not I never recommend my clients give up that option completely if it's available to them. For instance, if your employer matches anything (very rare these days) you should contribute enough to get every penny matched, but no more! That is essentially free money once the account is vested. In actuality, you worked hard to get the amount you contributed, if you take advantage of the matching - you let your employer pick up the tab for the taxes it'll cost you as you withdraw your money! Keep in mind that those funds you contribute TO your 401k don't count as income you are taxed on, and the allowable amount you can put in has been going up every year. In an IRA, you are still limited to the total amount you contribute ($2500 single/$5000 couple)and that will get you no closer to retiring than leaving your money in your checking account! So I wouldn't recommend going that route unless you have a sure fire reason for doing it. But the rest of your available funds should be placed in investments that do more for you, including TAX FREE DISTRIBUTION. If you have a substantial amount of money there, anything over 25k, it's not worth it to lose 1/2. However, if you do have another place for your money THAT IS A QUALIFIED TAX ACCOUNT... which means it follows the same rules as the 401k about withdrawal, etc. like an IRA - you can pull out of the 401k program at work and ROLL those funds into the other account. If they roll the money directly from the 401k to the IRA and you don't "see" the money - 0 penalties. But if you wanted to start up with the 401k again... you'll be locked out for a year. But, you can borrow money from your IRA penalty free for [b]59 days[b]. Sounds silly? It's true, but again, not recommended unless you KNOW you will have it back in there in 55 days!
If you'd like to bounce any of you questions or strategies off me, feel free to ask. I hope this has been a little helpful... and we weren't way off with what you looking for.